Update Equities: Rate cut speculation, trade deals and tax bill impact
Early in the week, the pursuit of record highs on the US stock exchanges initially continued, driven by hopes of easing trade conflicts with Canada and the EU. Investors also speculated on a possible earlier rate cut by the Federal Reserve (Fed). Furthermore, President Donald Trump's tax bill, which was passed by the US Senate, was in focus.
As the second half of the year began, investor sentiment was dampened due to reserved statements from Fed Chair Jerome Powell. Additionally, the ongoing trade disputes between the US and various trade partners further clouded the mood. However, the attention shifted back to Trump's tax and spending bill after it cleared the hurdle of being passed by the US Senate. Dubbed the ‘big, beautiful bill’, it includes tax relief and higher spending on border protection and defence. The effects are expected to be positive for the equity markets. However, the approval of the bill could further escalate US debt, affecting the bond markets negatively. Powell said at the ECB Forum on Central Banking in Sintra that any decision regarding interest rate cuts depends on economic data. This slightly dampening investors' outlook for a rate cut in the short-term horizon.
Later in the week, this was reflected in mixed developments on the US stock exchanges. While the S&P 500 Index reached a new record, the Dow Jones faced pressure due to disappointing employment data. Additionally, the US administration's planned tariffs created uncertainties. Trump's contradictory statements regarding the extension of the deadline for trade agreements with the EU heightened these uncertainties. However, a trade deal with Vietnam and the announcement of lifted restrictions on chip design software in China, as part of a trade deal with China, brought back some positive sentiment to Wall Street.
The major US banks once again captured attention this week. After passing stress tests, several institutions announced increased dividends. JPMorgan also announced a USD 50 billion share buyback program. The dividend for the third quarter is set to increase from USD 1.40 to USD 1.50 per share. Additionally, companies in the renewable energy sector benefited from last-minute changes to the US tax package. Shares of wind turbine manufacturer Vestas, wind power plant builder Nordex, and solar technology company SMA Solar were highly sought after. An important positive aspect for the industry is the exemption from the operational deadline set at the end of 2027. This means that projects starting in the next twelve months and operating before mid-2030 will still receive full subsidies. Tesla reported another sales decline for the second quarter. Deliveries fell by 13.5 percent year-on-year, although this result was largely expected. It was pleasing that the company was able to expand production more significantly than anticipated.